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Part I Finance Leasing for Lessors and Lessee

Rimco PR Services Corp. and Rexach PR Construction sign a lease

agreement dated January $1,2023,$ that calls for Rimco to lease a

construction crane to Rexach beginning January $1,2023.$ The terms

and provisions of the lease agreement, and other pertinent data, are as

follows.

The term of the lease is $5$ years. The lease agreement is non$-$

cancelable, requiring equal rental payments of $$100,000$ at the

beginning of each year $($annuity$-$due basis$).$ Present value factor

$4\mathrm{.}62990$

The crane has a fair value at the commencement of the lease of

$$500,000,$ an estimated economic life of five years, and a

guaranteed residual value of $$10,000.$

The lease contains no renewal options. The crane reverts to

Rimco at the termination of the lease.

Rexach depreciates, on a straight$-$line basis, similar equipment

that it owns.

Rimco sets the annual rental rate to earn a rate of return of $5$

percent per year.

The expected profit on the sale of crane is $$300,000$

Rimco total revenue for the year ended on December $31,2022,$ is

$$5,000,000.$

Further, assume the crane has a $$350,000$ cost to Rimco.

The crane reverts to Rimco at the termination of the lease.

The collectability of payments by Rimco is probable.

Required:

a$.$ Prepare the entry to record the finance lease on its books on

January $1,2023.$

b$.$ Prepare the entry to record the first lease payment on

January $1,2023.$

c$.$ Prepare the entry to record accrued interest on Dec. $31,2023$

d$.$ Prepare the entry required on December $31,2023,$ to record

amortization of the right$-$of$-$use asset $($straight line method$)$

Lessor:

a$.$ Computes the lease receivable of Rimco

b$.$ Prepare the journal entries on January $1,2023$

c$.$ Prepare the lease amortization schedule and the entry to

recognize the required revenue for December $31,2023$

d$.$ On January $1,2028,$ the leased asset is returned to Rimco.

Prepare the required entry.

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